How to Get a Mortgage With Foreclosure on Your Credit Record

Going through a foreclosure on your home is just about the worst experience a homeowner can have. The effects last well beyond the time of the foreclosure. When a foreclosure occurs, other accounts may be in default as well, further injuring your credit score. Getting another mortgage through regular channels immediately after a foreclosure is impossible, but owner financing might be an option.

Things You'll Need

  • Credit report
  • Proof of job stability (two years' worth of pay stubs, income tax returns)
  • Downpayment

Step 1

Go to the Annual Credit Report website and request all three credit reports. These are free once a year, but there is a small cost to get your credit score. When you receive the credit reports, review them and make sure that all of the information is accurate. If there are duplications, errors or outdated information, dispute these by calling the customer service number that is listed on page one of each report. Be sure the foreclosure is reported correctly. Doing this could increase your credit scores. Request corrected reports sent to you when the corrections are made.

Step 2

Lenders have set down time constraints (waiting periods) after foreclosure before another loan can be approved. Conventional lenders (Fannie Mae and Freddie Mac) require a five-year waiting period before they will consider granting another mortgage, and the Federal Housing Authority requires three years. You must rebuild your credit during this waiting time in order to be approved.

Step 3

Begin your search for a home that the seller will sell you by owner-finance or lease-purchase. You can write your offer to close it after the lender's foreclosure waiting period ends (in the case of a lease-purchase), which gives you time to rebuild credit. An owner-finance can be closed immediately, but the seller may check your credit and job references. He will also require a down payment. Search out lease-purchase or owner-finance properties for sale in newspapers, publications and Internet sites such as "Craigslist." On an owner-finance, the seller may require a sizable down payment, so be prepared. Call all of your possibilities, then narrow down the list by the area and price range that fit your needs.

Step 4

Preview the homes and select the one that makes the most sense. Do some homework before making an offer. Have a real-estate agent do a "sold search" on the neighborhood to see what other homes in the neighborhood have sold for to make sure the home is valued at the seller's asking price. If so, call and speak with the seller regarding owner financing. Give honest, straightforward details about your circumstances, and show proof of ability to make payments. Discuss her down payment requirements and negotiate with the seller an amount that you can afford. If she is willing to owner-finance, find out her terms, interest rate and payment. Ask if she will cover closing costs. All these terms are negotiable. If you are able to come to terms, contact a real estate attorney for some contract help. He will discuss with you the need and cost of title insurance and other costs for closing the loan and buying the house.

Step 5

Make your offer in writing and be prepared to bind your offer with an earnest money check of an amount agreed upon by you and the seller. Make sure your offer is subject to being able to gain clear title to the property at closing. Get a copy of the seller's deed, survey and signed contract to purchase to give to the closing attorney. The attorney will do a title search and draw up documents for a mortgage as is required by the state the property is located in. You will need to shop for and provide a homeowner's insurance policy at your closing. Your attorney will walk you through the closing and owner-held mortgage.

Tips and Warnings

  • While owner financing is totally negotiable, coming up with down payment funds right after a foreclosure is not always possible. A lease purchase contract is a good possibility. This is a contract to buy a home, but it will have an extended closing date and will not close until some designated time in the future. (This can be one, two or more years.) It can freeze your purchase price now, and you get to "try out" living/leasing in the neighborhood while waiting out the lender-required waiting period for granting a new mortgage after a foreclosure. To exercise the purchase, you will need to have rebuilt your credit and be able to get a mortgage through conventional (Fannie Mae or Freddie Mac) lenders after a five-year waiting period after a foreclosure (or three years through FHA).
  • If this is your route to home ownership, note the lender's required waiting period, clean up the credit, re-establish at least three credit accounts and pay them on time or early. Talk with a mortgage lender well before you need to exercise the purchase part of the contract.

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